Online sales, social networking, mobile applications and Artificial Intelligence have received most of the attention when it comes to digital transformation. However, recent research suggests that the greatest bottom-line impact may come where many companies aren’t looking – from cost savings and changes beyond the direct interface with customers.
It is estimated that the average bottom-line impact that can be realised from digital sales over the next five years is around 20%; while a significant opportunity, it is much less than the bottom-line impact from cost reductions, which averages at 36%.
Of course, not all industries face the same opportunities or the same threats. But the message is the same; to capture the value available, organisations will need to assess the value at stake, invest proportionally to that value, and align their business and operating models accordingly.
How digital transformation drives business value
Technology drives value in businesses in four ways:
1) enhanced connectivity
2) automation of manual tasks
3) improved decision making
4) product or service innovation
Tools such as big-data analytics, apps, workflow systems, and cloud platforms—all of which enable this value—are too often applied selectively by businesses in pockets of their organisation, particularly in sales and marketing; as illustrated in the graphic below.
This creates missed opportunities to gain maximum advantage from digital investments. Big-data insights can be used to enhance customer experience and adjust pricing in real time. However, it can also be used for better forecasting of operational-capacity needs to boost resource utilisation and allocation.
Smarter and more complete application of digital transformation not only delivers clear improvements within a given function but can also unlock “trapped” value by improving information flows and reducing waste across the organisation.
Digital can reshape every aspect of the modern business
The clear message from our research is that companies need to embrace digital fully however, should do so in line with their unique opportunity. Why build a gleaming digital empire if more targeted improvements will suffice? Conversely, why dabble with small-ticket experiments when the value at stake can radically transform your business? To assess and act on the digital-transformation opportunity, we recommend four steps:
1. Estimate the value:
You need to get a clear handle on the opportunities available to you, whether these be efficiency or increased sales. Digital — and digitally influenced — sales should be assessed at the product level and evaluated against you and your competitor’s performance. On the cost side, administrative and operational processes should be assessed for automation potential and scaled to reflect the total savings that you estimate can be realised. The aggregate impact of reviewing sales and operational efficiencies can then be evaluated and turned into a detailed set of targets to monitor progress and drive value capture/realisation.
Most organisations don’t have the ability, resources, or risk tolerance to execute on more than two or three big change programmes at any one time. Be selective. Figure out what areas are likely to deliver the greatest return on investment and the best customer outcomes and start there. While digital requires some experimentation, too many ad hoc demos and showcases lead to scattershot investments that fail to deliver sustained value.
3. Take an end-to-end view:
One Insurance firm built a world-class digital channel but failed to update the (often prone to error) paper-based processes that supported it. That false perception of speed and efficiency eroded trust and staff morale. Although it may seem counterintuitive, overinvestment in a slick front end that is not matched with the corresponding high-quality fulfilment may lead to increased customer and staff frustration.
4. Align the business portfolio accordingly:
Translate your vision and strategy into a clear, executable and owned portfolio that has tangible KPI’s/success criteria. Ensure you consider governance, people, process and technology when building the portfolio. Don’t be afraid to refine and adjust the plan as you progress, nothing stands still and recognising this will form an important part of achieving a successful transformation.
Capturing the value of digital transformation is important in most industries — and critical for survival in some. Business leaders must assess their own company’s value, invest proportionally to address key opportunities and risks and keep in mind that the greatest value may reside beyond customer-facing functions.
For more information on digital transformation, please contact Simon Adams firstname.lastname@example.org or call 07500 605025.